Types of Life Insurance - Protection Only

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Article published on 7th July 2008

Generally speaking there are two basic 'types' of life insurance available to consumers - protection only policies and endowment or 'whole-life' policies.

Protection only policies are what we have discussed most frequently in these articles. It is the sort of insurance that pays out if you happen to die within a designated period of time, and then pays your next of kin (or whomever you have stipulated in the policy) a lump sum of money.

The downside of this sort of Life Insurance is that if you don't die in the agreed period (and I don't recommend that you aim to) you will not be paid anything at all. So you effectively lose the money.

The benefit of this sort of insurance is that it tends to be the most inexpensive of Life Insurance policies and many companies will renegotiate your policy after the allotted time for you original policy has past, or they may give you a deal on a new policy. It's always worth asking in advance.

There are many reported cases of (often admittedly desperate) people who take out this sort of insurance plan for as much as they can possibly afford, knowing full well that the policy holder has a terminal condition. The logic being that once the policy holder dies, as he or she sadly and inevitably will, the family he or she leaves behind will be able to pull themselves out of whatever financial dire straits they are currently in.

Such cases rarely work, however, as all companies offering life insurance, critical illness insurance, income protection insurance and health insurance will require full and up-to-date health checks before they agree a policy. Indeed, even if an existing policy holder dies and it comes to light that the policy holder was aware that he or she was suffering from a terminal condition before signing up for the insurance, then the company can contest the policy and may not have to pay out at all.

Life Insurance, as with all insurance, is about managing risk. There is never such a thing as 'free' money I'm afraid, and insurers are within their rights to protect themselves and their other customers from fraud, no matter how tragic or desperate the circumstances are surrounding that fraud.

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